CFPB Issues HOEPA Rule Proposal for High Cost Loans

On Aug. 15, 2012, the Consumer Financial Protection Bureau (CFPB) published in the Federal Register a proposal to implement new Home Ownership and Equity Protection Act (HOEPA) rules that expand the coverage of this statute and tightens the limits of what is considered a high cost loan.

The mandate for these changes the Dodd-Frank Wall Street Reform and Consumer Protection Act. This is one of many important rules since most lenders avoid the potential legal liabilities associated with HOEPA loans. In the last year for which there is data, fewer than 6000 HOEPA loans were made and most in the industry say the majority of these loans were done by accident.

The new rule proposal reduces the interest rate caps, limits the fees and points to 5, stringently restricts balloon payments, requires homeowner counseling when HOEPA is triggered, and limits prepayment penalties. It also expands HOEPA to include purchase money mortgages, refinances, closed end home equity loans, and open end credit plans making a HOEPA apply to most mortgage scenarios other than reverse mortgages.